Sprout Social, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter earnings report; quarterly results are not clearly provided in the filing text.
Business context
Sprout Social sells cloud-based social media management software, primarily through subscriptions. At year-end it had 31,762 customers across more than 100 countries. Subscription revenue accounted for 99% of FY2021 revenue.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $187.9 million | $132.9 million |
| Revenue growth | 41% | 29% |
| Gross profit / gross margin | $141.1 million / 75% | $98.0 million / 74% |
| Operating loss | $28.1 million | $32.0 million |
| Net loss | $28.7 million | $31.7 million |
| Operating cash flow | $14.8 million | $(11.4) million |
| Free cash flow (non-GAAP) | $13.9 million | $(15.4) million |
| Cash and cash equivalents | $107.1 million | $114.5 million |
| Marketable securities | $69.8 million | $49.4 million |
At December 31, 2021, current assets were $222.5 million and current liabilities were $98.4 million. The company had no outstanding balance on its $40 million SVB revolving facility at year-end; that facility expired on January 31, 2022. Total liabilities were $119.5 million, including operating lease liabilities of $23.6 million.
Changes versus prior year
- Revenue rose 41%, driven by new customers and increased adoption, users, profiles and products among existing customers. Customers increased from 26,718 to 31,762.
- Annual recurring revenue (ARR) increased to $224.2 million from $158.3 million. Dollar-based net retention was 112%, up from 110% (118% and 117%, respectively, excluding SMB customers).
- Gross margin improved one percentage point to 75%. Operating expenses increased 30% to $169.2 million, but fell as a share of revenue to 90% from 98%.
- Net loss narrowed by $3.0 million, while stock-based compensation increased to $21.7 million from $11.1 million.
- Operating cash flow turned positive. The company cited non-cash charges and working-capital inflows, including higher deferred revenue, as contributors; investing cash outflow was $22.1 million, primarily reflecting purchases of marketable securities.
Outlook, risks and unusual items
- No specific revenue, earnings or margin guidance is provided. Management expects continued investment in research and development, sales and marketing, and international expansion, and anticipates operating losses for the foreseeable future.
- Management said COVID-19 did not materially affect operating or financial performance in 2021 or 2020, but customer budgets, collections and future results remain exposed to pandemic and broader economic uncertainty.
- Key risks include reliance on third-party social-network APIs and data, cybersecurity and service availability (including AWS infrastructure), evolving privacy and data-security rules, competition, customer retention and expansion, and attracting and retaining employees.
- Non-cancellable data and services purchase commitments totaled $46.2 million, largely due in 2022 and 2023; operating lease liabilities totaled $23.6 million. The filing reported no material pending legal proceedings or material indemnification obligations at year-end.
- The independent auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective. Revenue recognition was identified as a critical audit matter. The company also disclosed a prior internal logging bug involving unmasked passwords, discovered in 2019; its investigation found no indication of external access or misuse.
- Class B shares carried ten votes per share and represented approximately 64.4% of voting power at year-end, concentrating voting control with the co-founders.
Investor verification points
- Check subsequent filings for the replacement of the SVB facility after its January 2022 expiration and any resulting change in liquidity or borrowing capacity.
- Assess the durability of 41% revenue growth, ARR expansion and net retention, including trends in customer acquisition, renewals and customer mix.
- Reconcile positive operating cash flow and free cash flow with the continuing GAAP net loss, deferred-revenue growth and stock-based compensation.
- Review the size and timing of data-provider commitments, lease payments and other contractual cash requirements.
- Monitor API access and pricing, privacy-law compliance, cybersecurity and cloud-provider resilience, and the effect of these risks on customer retention and margins.